Shaping Corporate Governance System: An Analysis of the impact of Law and Culture in Selected Studies

Abstract

Corporate governance systems evolve over time having correlation with national law and culture. The relation between culture and law is very dense under which corporations and financial markets emerge in a country along with different economic and political compositions. Modern corporation is influenced by the legal, economic, and cultural traditions that are unique to each market. Therefore, country specific corporate governance principles and code of corporate practices and conduct gained popularity and were adopted for different countries around the world. Differences in different aspects of governance issues are due to cultural differences. Cultural values might affect the development of a nation's laws and governance system in general. Recognising legal framework and cultural value dimensions as an important part of shaping corporate governance system, this paper examines interactive relations of a number of studies on law and culture such as Hofstede, Schwartz and CVS studies depending on the legal family /country category of LLSV study. Different statistical tests do not confirm uniformity among the legal families either in investors' rights and enforcement or cultural variables. However, the regression analysis reveals that most of the law enforcement variables of LLSV's study are significantly explained by cultural variables of individualism, integration and conservatism of Hofstede, CVS and Schwartz's study respectively. The other cultural variables that influence some of the law enforcement variables are power distance in Hofstede's study, moral discipline and long-term orientation in CVS study. These findings are important in developing country specific corporate governance system rather than importing from other countries.